Europe's finance chiefs will urge G7 counterparts at a meeting this weekend to warn markets against violent currency swings, hoping to keep a sliding US dollar from crippling euro zone exporters.
While the Florida meeting was not expected to yield a deal on the dollar, European ministers said the G7 should use yesterday's post-meeting communique to clarify its currency position and soothe foreign exchange markets. Japan also said it would discuss currency stability at the meeting.
"Europe will say that given the circumstances ... a further appreciation of the euro would constitute a problem. Excessive movements create worries," said a G7 government source, who declined to be identified.
Bank of Japan Governor Toshihiko Fukui echoed this.
"With economies around the world growing strongly, foreign exchange rates try to reflect the problems around the world -- in other words, where the imbalances are," he said. "But in doing so, markets do overreact at times."
The dollar's two-year slide of some 20 percent against the euro accelerated after a September meeting in Dubai when the G7 called for more flexible currency policies -- an apparent dig at Asian countries for keeping their currencies low through intervention or currency pegs. European governments have since complained that statement was misinterpreted.
But phrasing a joint statement this time is proving tricky, with the US happy with the boost a weaker dollar gives its own exporters -- especially in an election year -- and apparently unfazed by the pain it may cause elsewhere.
G7 sources said the communique's wording was still up in the air late on Friday and would not be finalized until Saturday. Ministers said central bankers would be closely involved in this process.
After a working dinner on Friday, ministers were to begin formal discussions at 9am yesterday morning and issue a final statement around 5pm.
PRESSURE ON THE HOST
Convinced huge US budget and trade gaps are driving the dollar lower, European ministers said they want US action.
"The US says that to reduce the US imbalance there must be more growth in the rest of the world. We say yes but this in itself won't reduce the US imbalance," the G7 source said.
Following a bilateral meeting with German Finance Minister Hans Eichel, US Treasury Secretary John Snow repeated his vow to halve the record US budget deficit within five years. "We view the current deficit as too large and unwelcome."
Snow is hosting finance chiefs from Japan, Germany, France, Britain, Italy, Canada along with top officials from the European Central Bank and the International Monetary Fund, among others, at a plush nearly 80-year-old Florida resort.
The world's most exclusive economic club has been famed for periodic deals over the past 20 years to intervene collectively to halt extreme movements in the world's major currencies.
But markets are wagering against any such drama at Boca Raton and reckon a repeat of the Dubai communique is likely -- with some qualifying language deploring excess market volatility.
"The market has a strong conviction that nothing is going to come out of this G7 meeting that is going to arrest the dollar decline," said Marc Chandler, chief currency strategist at HSBC Bank USA in New York.
The dollar stabilized against the euro in January after European officials publicly protested the speed of its fall, but currency markets remain edgy. The greenback fell again on Friday.
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